• The company made great strides expanding gross margins and reducing expenses, although full year revenue of $18.6 million (+19.2% Y/Y) came in lower than our expectations and just shy of previously raised guidance calling for >20% top-line growth.
• Other key metrics also exhibited slower growth: billings of $19.2 million increased only 13.6% Y/Y (not adjusted for slight shift at year-end fiscal 2008) and deferred revenue of $5.3 million increased only 13.1% Y/Y.
• Lower-than-expected revenue led to a slight cash operating loss for the year of approximately $700 thousand, compared to earlier guidance for full-year cash profitability.
• Fortunately, cash burn is under control: Sonic Foundry ended the year (9/30/09) with a net cash position of $1.43 million, down from $2.93 million one year earlier (= burn of $1.50 million), but up from $1.25 million at 6/30/09.
• Some good news: management implied that the revenue "tipping point" is finally upon us. From the press release:

• “Furthermore, we are beginning to see signs of economic recovery, and specifically, certain signals for expanded growth in mid-2010 as they relate to the Mediasite product and service offering. Correspondingly, our recent prospecting has resulted in additions to our sales pipeline that, if consummated, would dwarf most of the previous sales made by the company to date. These opportunities have been harvested both domestically and internationally and in different vertical segments of our customer base, most of it occurring in the last few months. Based on the expected timing of these new opportunities, mid-2010 may mark a significant turning point for the company, which could substantially expand operating performance, especially given the cost reductions and operating leverage now in place."

We are disappointed by the slight revenue shortfall and continuing operating losses, but cognizant that (1) Sonic Foundry operates in an "emerging" market where forecasting is a challenge and (2) we're in a recession that is crimping IT budgets everywhere. With regard to the latter point, we note that Polycom (PLCM) -- a much larger company but decent proxy for video/audio conferencing systems -- reported revenue down 12% Y/Y for the most recent quarter.

Last week, comScore (SCOR) reported that "holiday season retail e-commerce spending for the first 22 days of the November – December 2009 holiday season" was up 2% Y/Y. The web traffic measurement firm also announced expectations for a 3% Y/Y increase for the full season. Since then, we've see positive numbers for Black Friday and Cyber Monday (also from comScore - link here). While Y/Y growth remains moderate, we believe the increase is not only favorable for the space, but for the overall economy (supporting our earlier retail commentary).

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For all of the reasons detailed in our prior posts, we didn't expect to see a near-term sale to Churchill Downs (CHDN). That said, YB's results came up short versus our expectations with the economy and other risk factors somewhat derailing our thesis.

We actually met briefly with Youbet management back on October 1st at the Thomas Weisel Consumer Conference in New York and watched CEO Goldberg's presentation - link to PDF here. The presentation and our conversation emphasized several key points:

• Online gaming could "raise nearly $42 billion for the U.S. Treasury over the next decade, according to an analysis conducted by a non-partisan congressional scorekeeper."

Along with other gaming companies, Youbet.com (UBET, $2.08) supports the measure as a means to expand the company's Internet platform (and clearly valuable, apt domain name) into new areas beyond horse racing. While some investors are concerned about potential cannibalization for Youbet's core horse racing business, we see somewhat distinct market opportunities that should lead to a much larger addressable market for the company. Thus, any news on this front could prove a positive catalyst for the stock, although timing/ execution related to potential new business lines remain unknown and, therefore, not factored into our valuation.

• Netflix is spending cash more than it generates to repurchase shares at a very high multiple.
• Management thinks buying even at current levels is a good "value" (*per CEO Reed Hastings on call).
• Forward free cash flow growth is not a certainty in a competitive marketplace.
• As excess cash is depleted, Netflix plans to borrow money to fund more share repurchases.
• And, many companies made ill-timed repurchases in recent years.

Let's dig a bit deeper and look at the details. Some commentary from the conference call transcript (sourced via Seeking Alpha here):

Well, in this case, the warning signs were correct, as PetMed's F2Q10 results came up short: revenue of $62.4 million (+5% Y/Y) was below a consensus estimate of $66.0 million (+11% Y/Y) with in-line earnings of $0.28 per share (+12% Y/Y, not good enough given expectations for beat). Further, on the conference call, management explained that the company was unable to purchase as much remnant TV advertising space (left over TV commercial slots in "scatter" market) as prices that make sense for PetMed. Apparently, "general advertisers" that would normally be buying slots "in advance" are buying remnant space this year because of economic uncertainty.

Although we look at all types of companies and sectors, we have a slight bias toward asset light, cash generating Internet companies such as Youbet (UBET, $2.26), PetMed Express (PETS, $19.41), and Bidz (BIDZ, $3.32) that should have secular tailwinds for years to come (*so long as the Internet doesn't go away, which only happens in a Mad Max Thunderdome scenario, in which case all companies are in trouble). Accordingly, we appreciated data and insights included in Emerging E-commerce Trends and Practical Insights by Mark Brohan, VP of Research, Internet Retailer. We recommend watching the presentation, but include a few key points/slides here:

Also, yesterday, the company announced an accounting restatement related to YB's rewards program (see here, small non-cash impact). Shares retraced part of Friday's up move yesterday.

On our blog here, we look at some hard data in railroads, trucking, air transit, and other areas. The hard data is decidedly negative on a Y/Y basis and jibes with anecdotal information we've collected:

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Bidz happens to report 2Q09 results today, 8/10/09, after market close. On Friday, the company actually moved up the reporting date from Wednesday 8/12/09, which is somewhat unusual and could be perceived as a positive sign coming on the heels of Blue Nile's report last Thursday.